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Friday, November 8, 2013

Wilmar International - On firm ground amid lower ASP (CIMB)

Wilmar International -
Current S$3.45
On firm ground amid lower ASP

Lower palm products and soybean prices did not stop Wilmar from notching up 24% core net profit growth in 9M13. This clearly demonstrates that its earnings are more resilient to commodity price declines than upstream planters due to its integrated business model.

9M13 core net profit was broadly in line, at 75% of our full-year forecast and 73% of consensus expectations. Earnings improved for all key divisions other than plantations. We fine-tune our EPS by less than 1% but raise our SOP target price to S$4.12 as we roll it forward to end-2014. Wilmar remains an Outperform, with improving earnings prospects being the main catalyst.

Key results highlights
3Q13 core net profit inched up 1% yoy as better earnings from the palm and laurics, sugar and consumer products segments were tempered by a weaker showing from its oilseeds and plantations divisions. Palm and laurics margins stayed strong despite rising competition from new players, suggesting that Wilmar's move into higher value-added palm products has been successful in protecting its profit margins. Earnings from oilseeds and grains rose qoq because demand recovered after bird flu worries subsided. The consumer products and sugar divisions performed better due to higher sales volumes and lower raw material costs. However, plantations earnings were hit by lower yields, declines in CPO selling prices and higher production costs.

A good achievement
Overall, the 3Q results are positive as they show the resilience of palm and laurics margins despite overcapacity fears. Sugar earnings were relatively unaffected by the "yellow canopy disease" and the crush margins were higher in 3Q. We project 4Q earnings to be lower than 3Q due to weaker sugar contributions.

Raising target price
We raise our target price to S$4.12 after rolling it to end-2014. Wilmar remains one of our top picks in the plantation sector as it is trading at only 1.1x P/BV, significantly lower than its 5-year historical average of 1.9x.

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